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COVER STORY

Serviced to Convenience

The demand for serviced apartment has grown drastically in the past ten years, fuelled by gradually improving product knowledge, better understanding of the benefits serviced apartments offer, improved standards of apartments, and arrival of major hotel brands into the sector. Sweekrit Nadekar examines the ever growing segment of ‘Serviced Apartment’

Monday, January 27, 2014, 18:00 Hrs  [IST]

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Along with all-suite hotels and budget hotels, serviced apartments were introduced in the United States of America, in the early 1960s. While all-suite hotel and budget hotel took the best of the existing demand, serviced apartments were positioned as the extended-stay hotels in order to attract long-stay travellers. With the boom in international travel, especially amongst corporate professionals, the need for serviced apartments has risen dramatically. Serviced apartment offer several benefits in comparison with regular hotels for long stay guests in terms of environment, space and privacy. Serviced apartments could also be more convenient when travelling with a family as one has the privilege to cook one’s own meal.

 Serviced apartments today range from budget to deluxe categories. However, given the new and limited presence of serviced apartments in India; it is difficult to classify the existing properties into these categories. Serviced apartments are available as studio apartments (one room that can be used as living area and sleeping area, a little kitchenette and a separate bathroom), 2BHK (Bedroom Hall Kitchen) apartments and 3BHK apartments. Due to the availability of kitchen facilities in the apartments, a serviced apartment usually offers no extra services, such as a restaurants or bars.

serviced_to_convenience_4.jpgHowever, in some serviced apartments that have been built as an annex to an existing four-star or five-star hotel, guests are allowed to make use of the hotel facilities at no extra charge. Most cities in India, whether big or small, have a proliferation of guesthouses of all types. The sudden growth of serviced apartments in India has been very dramatic and thus, it is difficult to do any kind of market analysis regarding the occupancy level and Average Daily Rates (ADR).

"Serviced apartments provide temporary living solutions for business and leisure short or extended stay guests. They provide the best of both worlds , i.e. the full time attention and pampering services of a hotel and the security, privacy , independence,  larger space , state of the art kitchen and all other trappings that a home provides. It can’t get better !"

— LEMUEL HERBERT

Markets Potential
Serviced apartments are fast becoming hot real estate avenues, with as much as a 12-19 per cent annual yield on investments, against that of 10-12 per cent returns in the commercial segment. It is a new initiative undertaken by many hoteliers and developers in building residence catering to the foreign expatriates and business travellers. Proliferation in sectors like Medical Tourism, BPO, ITES, and Financial Institutions are pulling the crowd for serviced apartments in India. With more and more developers foraying into this uncharted segment, this segment is at the peak of its growth currently.

chris_hart.jpgChris Hart, President Hotel Operations, Asia Pacific, Four Seasons, expressed, “With an increase in disposable income, people are indulging more in high-end lifestyle products and are also increasingly owning highly customised products. India is emerging as one of the major, rapid-growth luxury market in the world. This spending tendency, coupled with the growing amount of wealth in India is a key factor driving demand for luxury brands and highly customised lifestyle products – in particular, high-end residential developments.”

“Branded residences cater to a growing segment of High Net Worth Individuals (HNWI), who are looking for a tone of exclusivity in the atmosphere, design, services and amenities attached to the residence. We believe that as HNWI increase across India, the demand for high-quality branded residential developments that offer superior service, design and brand prestige will also increase,” Hart added.

serviced_to_convenience_2.jpgIt is observed that today many multinational professionals visit several Indian cities for official purposes. Their visit varies from short stay to long stay. This has resulted in a demand for quality accommodation for longer periods.

Companies prefer booking serviced apartments for their staff as they are a cost effective. They work out cheaper than quality unfurnished or furnished accommodation that companies need to provide to their expatriate employees.

This segment also, provides options for individuals to own a property and give it for lease back option with the developer for investment, assuring (15 – 20) % Y-o-Y returns on the same, thereby gaining popularity amongst the real estate investors particularly the NRI’s who have started looking at it as an lucrative option for investment in times of decelerating real estate growth
— NEERAJ GULATI


ajit_koushik.jpgThe Leela Palaces Hotels and Resorts, Grand Hyatt and Marriott International are amongst the major hotel groups that also provide serviced apartments. Few months back, The Ascott Limited, luxury serviced apartments associated with Ireo, a private equity fund focused on real estate, to offer serviced apartments in Gurgaon. Ajit Koushik, Area General Manager - India, The Ascott Limited, said, “The number of international arrivals in India have increased over the last few years, owing to an increase in Foreign Direct Investment (FDI). In the first half of 2013 alone, FDI into India has increased by about 35 per cent in comparison to 2012, according to a report by the United Nations Conference on Trade and Development (UNCTAD). International tourist arrivals are estimated to increase to over 11 million by 2021 (Source: Travel & Tourism Economic Impact 2011 – India by World Travel & Tourism Council). India is a key market with huge demand and there is a limited supply of quality serviced residences.”

serviced_to_convenience_3.jpgKoushik elaborated, “Tier I and tier II cities that feature large and mid-sized corporate companies from India and abroad, are ideal destinations to develop serviced apartments. Corporate companies are an important segment as they give steady and predictable business. Ascott’s focus is currently limited to metro cities only and in terms of investments, we prefer to develop ‘brownfield’ assets, where time to market is lesser.”

In India, serviced apartments are mostly confined to cities and corporate hubs. But, if we look at India’s domestic tourism industry, it revolves around religious destinations. Many real estate developers and service management companies see this as an opportunity to develop quality serviced residences in key pilgrim destinations.

neeraj_gulati.jpgAssotech Realty, a real estate development company, recently announced their foray into the hospitality industry with the initiation of its first serviced apartment in Shirdi, with an investment of about Rs 100 crore, with five-star facilities. Neeraj Gulati, Managing Director, Assotech Realty Pvt Ltd., also intends to take up in couple of other pilgrim destinations across the country.

Gulati commented, “The percentage of religious travellers in the recent past has been doubling each year at pilgrim destinations. In order to encash this opportunity, several three-star and five-star hotels have opened up in these religious destinations. According to industrial sources, there is no prevalence of five-star hotels or serviced residences across the religious circuit of India. Today, religious destinations are one of the most attractive investment options for the Indian real estate and serviced apartment sector.”

lemuel_herbert_new.jpgBut, how is managing a hotel different from managing a serviced apartment? How does the developer – owner - management company (brand) relationship work in this model? Commenting on the distinction between serviced apartments and hotels, Lemuel Herbert, Area Manager, Oakwood, Bengaluru said, “At serviced apartments, the level of engagement with guests is far higher than that in a hotel where the average length of stay is 2-2.5 days. Guests in a serviced apartment can stay even up to two years! However, housekeeping is the biggest challenge for service apartments. The space, equipment and infrastructure of the entire apartment needs to be managed not just a 350-400 sq ft room as in a hotel. Being there all the time yet not being intrusive is what is required. It is much more demanding than a hotel.”

Kaushik commented, “Service residences are exclusively designed with home comforts that provide an ideal accommodation option for guest seeking alternate homes. Hence, rendering services and managing guest expectation in a serviced residence is of a more personalised nature than hotels. As for the land owner cum developer - management company relationship, managing such a relation in hotel development versus a serviced residence development is more or less the same. In both cases, the owner-developer assigns the construction of the property to a third party company (builder) and appoints a management company to operate it. The builder’s role ends once the building is completed and handed over to operations. From there on, it is the owner-developer and management company’s show.”

As serviced apartments promise to be high on amenities and facilities and a strong demand is emerging for good quality service especially in tier II and tier III cities, this can be considered as a bright opportunity for companies to enter the serviced apartment segment. Many cities like Noida, Bengeluru, Hyderabad and Gurgaon are considered as big potential market for serviced apartments. Even pilgrim cities like Varanasi, Allahabad, Rameshwaram, Ujjain, Konark, Shirdi and Nasik are becoming investors favourite for the same.

richa_k_singh.jpgRicha K Singh, Executive Vice President, Treehouse Group, said, “Real estate developers have already realised that serviced apartments provide a quicker  Return in Investment (RoI) as compared to hotels. Also, small time entrepreneurs can venture into this business easily. Out of the total development projects in the hospitality sector till 2015, eight to ten per cent of them are expected to be the branded in the serviced apartments category. Therefore, in the next five years, there is tremendous scope of growth. Treehouse has a set of serviced apartments under the name of Treehouse Blue in South Goa and despite the fact that we were only in South Goa, the property started making profits from the first year itself.”

serviced_to_convenience_5.jpgKaushik commented, “The long stay nature of service residences makes it not just a stable yielding business proposition but also accounts for lower costs and higher operational efficiencies, resulting in higher Gross Operating Profit (GOP) margins.  Importantly, lower initial investments driven not just by the functional nature of service residences but also absence of large guest facilities, F&B outlets, MICE amenities etc. Reduced cost of refurbishment makes it a more viable option. Thus, serviced residence concept is indeed a fast growing concept and India will surely witness a clear and conscious move on developer’s part to launch international class service residences in all major cities in India.”

Looking at the current Indian market scenario and the outburst in the corporate sector and domestic tourism industry; there is no doubt that the serviced apartment segment will soon be flourishing across India.

 
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